Electric Power Supply Association v. Star

On October 9, 2018, the Seventh Circuit Court of Appeals denied a petition for rehearing of its decision upholding Illinois’s “zero emission credit” (ZEC) program for nuclear power plants. The court held in September that the Federal Power Act did not preempt the ZEC program and that the program did not violate the dormant Commerce Clause.

On September 13, 2018, the Seventh Circuit Court of Appeals upheld an Illinois law that established subsidies for some in-state nuclear generation facilities by providing them with “zero emission credits” (ZECs) that fossil fuel-fired power plants were required to purchase. The price of the credits was based on a social cost of carbon. The Seventh Circuit held that the Federal Power Act did not preempt the Illinois law because the ZEC program stayed within the scope of the state’s authority to regulate power-generating facilities and did not impinge on the Federal Energy Regulatory Commission’s (FERC’s) authority to regulate sales of electricity in interstate commerce (including in auctions conducted by regional organizations). The plaintiffs asserted that the ZEC system indirectly regulated such auctions because average auction prices were a component of the formula for determining the cost of a credit. The Seventh Circuit concluded, however, that because the ZEC system did not require that power be sold in an interstate auction, it was not preempted, even though the ZEC system would indirectly influence auction prices by increasing the quantity of power available for sale. In addition to the preemption question, the Seventh Circuit also briefly addressed the plaintiffs’ dormant Commerce Clause claims, writing that Congress’s provision that states may regulate local generation, combined with the “absence of overt discrimination” in the ZEC program, “defeats any constitutional challenge.”

Intervenor-appellee Exelon Generation Company, LLC, in a letter to the Seventh Circuit, characterized the FERC order as a “final blow” to the plaintiffs’ case since the order “repeatedly recognizes states’ authority to subsidize, and rejects Plaintiffs’ preferred tariff changes in favor of ‘accommodat[ing]’ such subsidies.” Exelon characterized the FERC order as proposing “a market design that complements states’ choices.”